Last week, we took a look at the evolution of lease guaranties from full-blown general personal guaranties to the limited, now favored “good guy” guaranty. In a nutshell, a good guy guarantor stepped up to the plate to assure the landlord that the space would not be milked for rent, and the quid pro quo was that the guarantor could unilaterally control the end date of his obligations by taking care of tenants’ financial obligations through a new end date—an end date based on completion (at a minimum) of the following checklist: physical surrender of the premises, vacant and in reasonably satisfactory condition with the keys turned over to the landlord’s agent.
We then dug deeper and found a whole slew of issues in need of negotiating. Categorically, these were money items and performance items. Money items include base rent, escalation charges (taxes and operating), accelerated rent, unamortized expenses such as TI, free rent and brokerage charges, and advance-notice requirements, all of which translate into dollars and cents.
Meanwhile, performance items include obligations such as repairs, maintenance, compliance with laws, removing personal property and end-of-term obligations to restore the premises.
O.K., so landlords had put the good guy on steroids, and now the deal makers and counsel have the unenviable task of sorting out what’s fair. Having a so-called standard New York lease and being of that certain age where I can say I was a midwife at the birth of the good guy guaranty, allow me to take a shot.
Starting with the landlord’s perspective, the base rent is paid to the date the tenant vacates. As to advance notice, yes, the landlord needs some notice to get geared up for re-rental, but I’ve seen as much as six months or more—and that’s excessive. Suggest one or two months.
Accelerated (lump sum) rent? No. Broom clean—well that’s enough to assure the premises won’t be trashed and the trash left in place. Fair. Yes, of course, vacant and free of any subtenancies. Performance? Not in the gene pool if you look at this guaranty’s DNA: to disincentivize a tenant from remaining in possession without paying rent.
But obviously, basic repairs should be included. And looking ahead to a sale-of-the-business-assignment or subletting, the cautious good guy guarantor will ask for (and should get) some release mechanism based on substitution of someone of equal financial wherewithal.
I think this topic merits some spirited leasing community debate, so please sound off.